The barman picks up the video cassette case lying on the counter of an establishment on Hudson Street, Manhattan. "Ah, it's Led Zeppelin?" Actually, it's not - but his mistake is understandable. Michael Powell's films have always been misunderstood, so why should Stairway to Heaven be any different? This was the name given in the US to the film-maker's 1946 movie, A Matter of Life and Death.

"Michael was furious about the change," says his widow Thelma Schoonmaker, leaning forward in the seat in her editing suite in Martin Scorsese's Park Avenue headquarters. "They said here that they couldn't have death in the title even though there had just been a war in which millions had died." Schoonmaker was six years old when the movie was made.

A Matter of Life and Death was Powell's favourite among his own movies and came 20th last year in the BFI's poll of the 100 greatest of the previous century. "I think the theme of love being about sacrifice and sacrifice about love was very important to him," says Schoonmaker. "It seems to be reaching into people deeply. He didn't have any fear of death himself and that's evident in the film."

It was one of 19 that Powell made in collaboration with Emeric Pressburger, a flight of fancy rooted in earthbound themes where a black-and-white courtroom drama in the heavens holds the key to life and love shot in colour down below. The movie opens with David Niven - almost camp as the sort of Brit that time forgot - as an airman going down in flames without a parachute and sharing his supposedly final words with a female American radio operator.

Powell too chose to travel without a parachute. "He was a magician; he let his imagination run riot; he felt he was absolutely free," says 60-year-old Schoonmaker, elbows on thighs and chin in left hand. There had been triumphs before, such as The Life and Death of Colonel Blimp (Churchill did not approve); and others would follow, including The Red Shoes, which won two Oscars.

But it was Peeping Tom in 1960 (by this time Powell was operating without Pressburger) that blighted a career stretching back to 1925. Today it is acknowledged as a classic but then it was reviled. It was pulled rapidly from cinemas, investors got cold feet and it seemed that taste and the times had no further use for Powell.

"Michael and Emeric were both living in terrible oblivion and felt they had been chucked out," says Schoonmaker. "Their movies were made in a certain time so they has to reflect that time. They got thrown out with the bathwater when the kitchen-sink school of film-making came in.

"They were in the dark for so long, 20 years, a terrible long time, and strapped for cash. But Michael never became bitter. They never stopped believing in their movies."

Fortunately for them, neither did a young man glued to the screen on the Lower East Side of Manhattan. "Michael thought that television was the end of his career but in fact it saved him because Martin Scorsese was watching his movies on television and eventually came to England to find him."

Powell writes in the second volume of his autobiography: "No wonder that when they got me alone and out on a limb with Peeping Tom, they gleefully sawed off the limb and jumped up and down on the corpse."

Little Marty knew nothing of this, indeed knew nothing much about Powell and Pressburger. But he did know that it was worth defying his mother to watch the Million Dollar Movie slot on television, which would show the same film each day for a week. Here he came across their work, and he did not forget it.

Years later, after finishing Taxi Driver in the mid-70s, Scorsese met Powell in London. Powell had seen none of Scorsese's work and the American thought that the Englishman was dead. If he was, Scorsese set about helping to revive him.

Scorsese, whose office walls are home to original posters for Powell and Pressburger films as well as those for his own, says now of A Matter of Life and Death: "It holds up, I think, because of the outrageousness of it. It's a real leap of faith - you either go with it or you don't. And if you do it's both a fantasy and a love story that plays out in the mind of Niven. What happens to him is totally realistic. Powell's vision is a place that's so beautiful to be alive in."

Schoonmaker certainly thought so and she and Powell, 35 years between them, got together in Los Angeles after she received her Oscar for Raging Bull. "I have the best job in the world and Marty got me the best husband," says Schoonmaker, breaking off occasionally to manipulate one of two editing screens where she is working on Scorsese's latest project, a history of Italian film provisionally titled Il Dolce Cinema.

"We had 10 years, that was all, but it was fantastic. I never thought I would get married: I'm such a workaholic. We just married on a whim. He was so vivid, he never wasted anything."

Until Powell died at the age of 84 in 1990 the couple used to spend three months a year at his cottage in the Cotswolds. Now Schoonmaker is lucky if she manages two weeks, such is the frenetic schedule set by Scorsese, to whom she refers on the telephone as "my director". She spends six, sometimes seven, days a week at her desk and in a few months they will be in Rome to start work on Gangs of New York.

"I could do with a little more time to myself but Marty always has another film coming. I can't give up working on this. They become old friends, these films. And I never get tired of Michael's films, there are so many levels to them."

Powell used to tell her sometimes that he never worked such long hours in his day. "He said he was shocked by the hours we spent at it. It's very hard being the mate of a film-maker. It's so exciting but the person at home is not so amused." Then she started looking at Powell's diaries: he would come home at 10pm and settle down to write for a couple of hours. Maybe it was only work when somebody else was doing it.